Pressure is mounting on government officials to backtrack on plans to exclude the most expensive properties from the new national flood subsidy fund after insurers withdrew their support for the exclusion.

The Association of British Insurers has written to Owen Paterson, environment secretary, to call for more properties to be protected under the Flood RE scheme.

Officials at the Department for Environment, Food & Rural Affairs said that the ABI’s intervention would not change their stance. They argue that if expensive riverside homes are included, poor households would effectively be subsidising the wealthy who chose to live on floodplains.

Flood RE is being set up to cap the cost of insurance for hundreds of thousands of households.

The scheme is funded by a mandatory levy paid by the property owners. Even though those owners of new build, buy to let, and properties in the Band H council tax band would be required to pay the levy they would be denied access to the scheme.

Without the protection of Flood RE, policyholders are at risk of huge increases in premiums because insurers say their existing commitment to universal flood coverage is no longer viable.

The ABI had previously argued in favour of the Band H exclusion, pointing out that ending it would mean a rise in the Flood RE levy for everyone.

But the trade body has now reversed its position and is pushing for Band H homes to be included.

On Monday, the ABI said it had originally gone along with the exclusion because political objections to subsidising rich homeowners could have undermined the scheme.

Huw Evans, director of policy at the ABI, said the body was changing its position because it was now clear that Flood Re has cross-party support.

His letter to Mr Paterson argues that the winter storms showed flooding can “affect people regardless of their Council Tax band”. It acknowledges that policyholders in at-risk Band H properties “could face issues” with securing affordable cover.